The loyalty exploiters: If you renew home or car cover without seeking alternative quotes, you could be taken for a ride by a cynical insurer

If there is one New Year’s resolution you keep, make it this one: ‘I will not automatically accept the renewal notices sent out by home or car insurers.’

There is growing evidence from our readers of extreme, unexplained increases in home and motor premiums – even where policyholders’ circumstances have not changed and they have not made claims.

It is thought the falling number of policyholders who do not use internet comparison sites are being hit with bumper increases at renewal as insurers exploit their loyalty.

'It's a game': Eileen Harte, with twins Skye and Connor and Kyle, switched car insurer after Egg raised the cost of her premium by 50 per cent

Some critics even believe insurers’
computer systems identify the long-standing customers who have not
complained about previous premium rises – and inflict the greatest
increases on them.

Motor and home policyholders are sent
renewal documentation annually, but rarely any explanation of an
increase in premiums. If policyholders do not respond, or switch, cover
at the higher rate is automatically applied.

Insurers
insist that premiums are based purely on cover provided and the risk
insured. But Financial Mail is aware of numerous cases where insurers
have been challenged about a premium increase and then haggled,
eventually agreeing to a cut, suggesting there are other factors at
work.

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Research by the
Office of Fair Trading found that in Northern Ireland, where switching
is far lower than in the rest of Britain, motor premiums are 11 per cent
higher. This would suggest that premiums for new business are being
artificially discounted to attract switchers, with loyal customers
bearing the cost.

The
growth in comparison websites, while excellent for consumers who shop
around, has made the situation far worse for those who do not routinely
switch, or who do not have access to the internet.

James
Daley, editor of consumer magazine Which? Money, says: ‘As these sites
have grown, the market has become more focused on price. To get the best
price, consumers with motor and home policies must switch, or at least
get new quotes with which to bargain with their existing provider, every
year. If you don’t, you’re liable to be exploited.’

More
than seven million drivers stick with their insurer at renewal time,
with almost one-third never bothering to check whether they could save
money elsewhere. With home insurance, 31 per cent stick with their
provider every year. On average, older policyholders are more loyal,
remaining for longer with one provider.

Motor
insurance specialist Peter Harrison at comparison website
moneysupermarket.com suspects that insurers do target long-standing
customers for the biggest premium increases. ‘The renewals market is
opaque,’ he says. ‘There is no way to know whether the premium you are
offered is competitive unless you shop around.

‘Insurers
say they price each individual according to risk, but customers have
seen a disproportionate rise in premiums when their circumstances have
not changed and they have another year of no-claims. How can that make
sense?’

Lee Griffin of
comparison website gocompare.com agrees. ‘We can’t know how different
insurers arrive at their renewal quotes, but we do know that loyalty is
not rewarded with lower premiums,’ he says. ‘The people who don’t shop
around at renewal subsidise those who do.’

However,
the Association of British Insurers denies ‘exploiting’ loyal
customers. Spokesman Malcolm Tarling warns: ‘If you are quoted less –
either with your existing insurer or a new provider – check that the
cover is equivalent. A cheaper premium may well reflect inferior cover
or a larger excess.’

One
Financial Mail reader was shocked when his Direct Line home insurance
premium increased by more than 50 per cent at renewal last October –
from about £500 to more than £800.

He
managed to find an identical level of cover elsewhere for much less,
but when he phoned Direct Line to say he was leaving, the insurer
lowered its quote to £490.

Direct
Line said the renewal quote had been mistakenly sent without a
multi-policy special rate to which our reader was entitled. ‘When he
called, we rectified this,’ a spokesman said. But the insurer admits new
customers routinely receive discounts that end after year one.

Eileen
Harte, a project manager from Connah’s Quay, Flintshire, has had the
same experience. ‘Insurers attract you with a low price when you sign
up, but then raise the premium sharply in future years,’ says Eileen,
who has more than ten years of no-claims.

‘I
paid £301 for fully comprehensive cover with no excess to Egg last year
but the renewal this month was £446. How can a 50 per cent rise
possibly be justified when I have not made an insurance claim and
nothing else has changed?’

Eileen,
who has three children, Kyle, 17, and seven-year old twins Skye and
Connor, shopped around online and found a quote for identical cover for
her diesel Peugeot 206 at just £237 with insure.co.uk, part of Hastings
Direct. Egg then agreed to match the quote, but Eileen has switched.

‘It feels like a game,’ says Eileen. ‘You have to keep jumping ship or threatening to leave in order to get the best price.

‘What about people who don’t know to switch, or who don’t have access to the internet? They lose out.’

Four simple steps to help cut the cost

On
Thursday, the Commons Transport Select Committee will publish its
report into the cost of motor insurance, examining the factors behind
rising premiums. But these practical steps can cut the cost of cover:

-
Shop around at renewal time using comparison websites. Some insurers
don’t list their products on such sites, including Direct Line and Aviva
Direct, so call them. Experts claim you need at least seven quotes to
make the best decision. Don’t forget to ask your existing insurer if it
can better any new quotes before you leave.

-
Increase your voluntary excess. If you agree to pay more towards the
cost of accident repairs, you can usually bring down your premium.

-
Protect your no-claims bonus. This protection may cost you a bit more
at the outset, but it can be worth it as premiums often rocket after a
claim.

- Cut your mileage. This should bring down your premium, but you must be honest about the figure.